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BANGLADESH BANK’S JOURNEY WITH FINANCIAL INCLUSION AND CLIMATE CHANGE
POLICIES ON FINANCIAL INCLUSION AND CLIMATE CHANGE
POLICY GUIDELINES FOR GREEN BANKING
The guidelines covered the following areas identified through a prior research by the Bangladesh Institute of Bank Management: 1. Policy Formulation and Governance
FIRST STRATEGIC PLAN (2010–2014) In its First Strategic Plan (2010–2014), Bangladesh Bank linked financial inclusion and climate change with a strategy that met the financing needs of two important yet underserved sectors of the economy: agriculture and small and medium enterprises (SMEs). The Plan included a strategy to: 1) Promote bank lending to agricultural businesses and SMEs for environmentally friendly projects, such as renewable energy and effluent treatment plants; and 1) To mitigate the risks of lending to these sectors, including steps to facilitate crop insurance and partial risk coverage for SME loans.
ENVIRONMENTAL RISK MANAGEMENT (ERM) GUIDELINES A year after the release of the First Strategic Plan, Bangladesh Bank issued the Environmental Risk Management (ERM) Guidelines for Banks and Financial Institutions in Bangladesh.4 The guidelines directed banks and other financial institutions to integrate ERM policies in their existing credit risk management (CRM) procedures, to protect financing from the risks of environmental degradation and ensure banking practices are sustainable. The guidelines focused primarily on environmental risks, but they included a few social risks, too. The objective of the ERM Guidelines was to establish a minimum standard for incorporating the evaluation of environmental and social issues in risk assessments for credit and investments, which would in turn promote sustainable business practices. The Guidelines took aqualitative approach to rating environmental risks and their application was determined by quantitative thresholds of the credit or investment being assessed. The loan categories included small and medium enterprises (SMEs), corporate financing and real estate financing.
POLICY GUIDELINES FOR GREEN BANKING In February 2011, soon after the ERM Guidelines were implemented, Bangladesh Bank issued the Policy Guidelines for Green Banking, which was designed as an umbrella policy framework for all the Bank’s future policies on green banking.
2. Green Finance 3. Incorporation of Environmental Risk in CRM 4. In-house Environmental Management 5. Climate Risk Fund 6. Green Marketing 7. Online Banking 8. C apacity Development of Employees and Awareness Building of Clients 9. Disclosure and Reporting of Green Banking Activities 10. Sector-specific Environmental Policies 11. Green Strategic Planning 12. Green Branches 13. Bank/FI-specific Environmental Risk Management Plan and Guidelines 14. Product Innovation 15. Sustainability Reporting
The Policy Guidelines laid out extensive targets for banks to adopt a comprehensive green banking policy over three phases: > Phase I Included policy formulation and governance, the incorporation of environmental risk in credit risk management, initiation of in-house environmental management, introduction of green finance and the creation of climate risk funds. > Phase II Built on the work of Phase I and included incorporating sector-specific environmental policies, green strategic planning and setting up green branches. Phases I and II both introduced guidelines allowing banks and other financial institutions to develop their own systems and establish their own targets. Phase II also added a monitoring and evaluation framework that required banks to submit regular reports on their green banking activities to Bangladesh Bank using a uniform reporting format. > Phase III Introduced standards for compliance and specified the preferential treatment that would be given to institutions that achieved compliance.
4 Environmental and Risk Management Guidelines for Banks and Financial Institutions in Bangladesh: https://www.bb.org.bd/aboutus/ regulationguideline/jan302011erm.pdf 5 BRPD Circular No. 02/2011: Policy Guidelines for Green Banking: https://www.bb.org.bd/mediaroom/circulars/brpd/feb272011brpd02e. pdf
